A pedestrian walks past a rain water puddle near the Bank of England in London. The BoE has estimated the net shortfall in the extra buffer known as minimum requirement for own funds and eligible liabilities, or MREL, is currently £26bn for the biggest banks.

Reuters
London

Britain’s banks will have until 2020 to build crisis funds to shield taxpayers from having to bail out failed lenders again, the Bank of England (BoE) said yesterday.
The BoE was setting out new rules for how 400 banks and building societies will in total have to hold an additional £223bn ($338bn) cushion of loss-absorbing bonds.
The net shortfall against that target is currently about £27bn across the 400 firms, nearly all of it at the biggest lenders such as HSBC, RBS, Barclays and Lloyds, which will have to hold bonds equivalent to at least twice their current minimum capital requirements.
The bonds would be written down to top up depleted core capital buffers in the event of a failure, thereby giving regulators time to close or restructure the bank in an orderly way and avoid the market mayhem of Lehman Brothers’ 2008 crash.
The rules, published for consultation, are based on a European Union law that will require all banks across the 28-country bloc to hold the extra buffer known as minimum requirement for own funds and eligible liabilities, or MREL.
The BoE estimated the net shortfall of such funds is currently £26bn for the biggest banks, for which the MREL will cost some £1.4bn a year to service.
The vast majority of MREL requirements will be met by re-issuing or rolling over £195bn of existing debt at banks over the next four years to make it eligible.
The new rules are seen by policymakers as the final piece of banking regulation since the 2007-09 financial crisis to end so-called “too big to fail” banks.
“The implementation of MREL is a crucial step forward to ensuring that any bank, large or small, carries sufficient resources to be resolved in an orderly way, without recourse to public subsidy and without disruption to the wider financial system,” BoE governor Mark Carney said in a statement.
The aim is to ensure shareholders and bondholders bear the losses when a lender goes bust.
The UK government poured £115bn into banks to keep them afloat during the financial crisis
The BoE said depositors could, in some circumstances, also bear losses on amounts held in accounts above the £75,000 that is automatically insured under EU rules.
Banks will be told in the second quarter of 2016 what is the indicative amount of MREL they must hold by January 2020.
The lenders will be given some flexibility as to how they will reach that level, the BoE said.
HSBC, Barclays, RBS and Standard Chartered have already been classified among the 30 global systemic banks which must hold a layer of bonds known as TLAC. The BoE said their level of MREL would not be higher than the globally-set TLAC, but that they must begin complying by the 2019 deadline.